The Risks and Challenges of BNPL

[mouakter13]

The appeal of BNPL is understandable. In addition to providing typically free financing, the application process is easy, with barely any credit check involved, limited-to-no human intervention – and nearly instantaneous approval. While approval criteria may vary, customers may still be eligible even if they have poor credit or no credit. Likewise, consumer possession is quick, with buyers generally able to take home the product at the time of purchase. In addition, with a fixed amount due each payment period and a deadline for settling the debt, some argue that BNPL simplifies budgeting for expensive, quality-of-life products, such as mattresses, washing machines and mobile phones. And research shows that some consumers make informed choices to use buy now, pay later options to manage their current cash flow by deferring payment, or avoiding paying interest charges, and using credit cards or loans for larger purchases. By providing consumers with a choice on how to spend and allocate their money and which credit products to use, BNPL offers a fast, easy and convenient approach to financing that can make new products accessible – even to lower-income customers and to younger, Millennial and Gen-Z customers.

It also appeals to retailers, who are paid upfront by the BNPL providers (minus their fee). It can expand their customer bases, boost sales and order values, encourage repeat purchasing, and increase customer loyalty.



Yet despite these benefits, BNPL has met with suspicion and concern. This is unsurprising, as the practice can be seen to promote instant gratification and a “buy now, worry later” mentality. Concerns have also been raised about whether customers view BNPL as credit, or instead associate it with payment technologies like Google Pay, Apple Pay or Amazon One Click. As a result, these consumers may apply lax scrutiny in their decision-making process for BNPL purchases, when compared to the more cautious approach they take when considering other credit products.

By providing fast and easy access to credit, BNPL can also be brazil whatsapp number data seen as allowing or encouraging customers to overextend themselves and purchase more than they need or can afford. What’s more, while most BNPL providers charge neither interest nor penalty fees for late payment, others opt to do so. This has the potential to trip up customers who assume all BNPL companies operate with no fees without reading the small print, and it can lead to unexpected penalty fees being levied on top of the amount borrowed, creating a spiral effect on the debt and making it difficult to repay. It is also possible to make multiple BNPL purchases with different providers, since little (if any) checks are made between providers. This allows customers to amass a larger debt across multiple BNPL providers, which can become challenging for the customer to track and repay.

These practices illustrate how BNPL could lead to over-indebtedness, particularly for vulnerable groups with low and/or unpredictable incomes and poor understanding of the risks. In the U.K., around a third of customers using BNPL products report that repayments have become unmanageable. These same households are also less likely to have a credit card or access to loans, and are more likely to face financial challenges that make access to credit critical. Becoming trapped in a cycle of debt and being denied access to credit can financially exclude customers for lengthy periods of time.